Fears that the economy will perform weaker than expected so far should play an important role in the rate hike we expect in October.
As the assessment of markets and analysts has changed since the last ECB meeting in September. At the time, it was not expected that the ECB would plan further rate cuts in October. But the drop in inflation to 1.8% in September, the improvement in the prospect of reaching the inflation target more quickly, but also the further significant deterioration of the business climate in the monetary zone now make it likely a drop in the deposit rate by another 25 basis points, to 3.25%, although some members of the governing council are still skeptical. But ultimately, concerns that the economy is performing weaker than expected so far are likely to play an important role in the rate hike we expect in October.
Monetary policy communication is unlikely to change much. Given continued political and economic uncertainty, many ECB members believe it is premature to declare victory over inflation now. We should therefore stick to “data dependence” and the “meeting to meeting” decision. We expect further rate cuts in the coming months. The next step is expected to take place in December 2024, when projections up to 2027 will be available, which will be particularly important for achieving the inflation target.
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